As I mentioned in the previous post, the USCPA exam is divided into four sections, and FAR (Financial Accounting and Reporting) mainly covers U.S. GAAP, nonprofit accounting, and governmental accounting.
For people who already have accounting experience under IFRS, one of the first questions that naturally comes up is:
“How different is US GAAP from IFRS?”
That was exactly my question when I first started studying as well.
Up until around 2020, the USCPA exam occasionally tested direct comparisons between IFRS and US GAAP. However, as the convergence project between the two standards gradually lost momentum, those comparison-style questions mostly disappeared after 2021.
Ironically, that also meant candidates familiar with IFRS lost an easy scoring opportunity.
Still, studying US GAAP by building on existing IFRS knowledge is far more efficient than learning everything completely from scratch.
So in this post, I wanted to summarize some of the major differences between IFRS and US GAAP — especially the topics that frequently appear in FAR.
Honestly, if you already work in accounting and refresh your understanding of these differences, most of FAR (excluding nonprofit and governmental accounting) becomes much more manageable.
(And as I’ll mention in USCPA 02, solving Becker questions repeatedly afterwards becomes far more effective once this foundation is clear.)
The Overall Philosophy: IFRS vs US GAAP
| IFRS | US GAAP |
|---|---|
| Principle-based accounting | Rule-based accounting |
| Broader use of fair value accounting | More limited fair value application |
| More extensive disclosure requirements | Relatively fewer disclosure requirements |
| Standards developed through international collaboration | Independently developed standards |
| Functional or nature-based expense classification allowed | Functional classification generally required |
The most important difference is philosophical.
IFRS is an international accounting standard used across many countries, which makes it difficult to establish extremely detailed rules that fit every jurisdiction perfectly.
Business culture, legal systems, and market practices differ significantly from country to country.
US GAAP, on the other hand, was developed primarily within one country — the United States — allowing it to adopt more detailed and rule-oriented guidance.
This difference in philosophy also explains why IFRS tends to allow broader fair value measurement and more flexibility, while US GAAP often prefers clearer, more conservative rules.
Once you understand this underlying philosophy, many individual accounting differences become much easier to understand conceptually rather than memorizing them mechanically.
1. Inventory
| Inventory | IFRS | US GAAP |
|---|---|---|
| 1. LIFO | Not permitted | Permitted |
| 2. Lower of Cost Rule | ||
| Market Value | NRV (Net Realizable Value) | Current replacement cost(not exceeding NRV) |
| Recovery of Write-Down | Permitted | Not permitted |
| Application | Applied item-by-item(grouping allowed for similar items) | Item-by-item, group-by-group, or total inventory basis allowed |
| 3. Long-Term Contract Revenue Recognition | 1) Principle: Completed-contract method 2) Percentage-of-completion allowed if conditions are met | 1) Principle: Cost recovery method 2) Percentage-of-completion allowed if conditions are met |
One of the most famous differences is that US GAAP still permits LIFO.
I once heard an explanation that American consumers generally prefer buying the newest products available rather than older inventory, which supposedly contributed historically to LIFO’s acceptance in the U.S.
Honestly, aside from earnings management concerns, LIFO sometimes feels closer to actual business reality in many industries 😂
Most other inventory differences also reflect the broader IFRS vs US GAAP philosophy regarding fair value and estimation.
2. Property, Plant and Equipment (PPE)
| PPE | IFRS | US GAAP |
|---|---|---|
| 1. Revaluation | Permitted | Not permitted |
| 2. Capitalization of Borrowing Costs | Interest income generated from specific borrowings is deducted from interest expense (net presentation) | Interest income generated from specific borrowings is not deducted from interest expense (recognized separately) |
| 3. Rental Property | Classified as investment property | Classified as PPE |
| 4. Impairment Loss | (1) Recoverable amount – carrying amount (2) Reversal of impairment permitted | (1) Two-step approach 1) Recovery test: Book value > Total future cash flows (undiscounted) 2) Impairment loss = Fair value – book value (2) Reversal of impairment not permitted |
| 5. Useful Life, Residual Value, and Depreciation Method | Reviewed annually (higher possibility of revision) | Changes allowed only in exceptional cases |
| 6. Depreciation of Asset Components | Required if components of an asset have different patterns of benefit | Permitted but uncommon |
| 7. ARO (Asset Retirement Obligation) | Reassessed annually (timing of cash flows, discount rate, and amount can all change) | Discount rate does not change |
One interesting point under US GAAP is that rental property is typically treated as PPE rather than as a separate investment property category.
Perhaps this reflects how deeply rental culture is integrated into the U.S. economy.
Another major difference is impairment testing.
Under IFRS:
- impairment is generally based on recoverable amount
Under US GAAP:
- a two-step recovery test is applied
- undiscounted future cash flows are used first
Personally, I felt slightly jealous of U.S. accountants here because impairment calculations sometimes seemed simpler under US GAAP 😂
3. Intangible Assets
| Intangible assets | IFRS | US GAAP |
|---|---|---|
| 1. Revaluation | Permitted | Not permitted |
| 2. Development Costs | Can be recognized as an intangible asset if specific conditions are met | Expensed as incurred |
| 3. Amortization of Computer Software | Amortized over estimated useful life | Useful life = Max of: ① Estimated useful life ② Actual revenue / Estimated total revenue |
| 4. Impairment Loss | (1) Recoverable amount – carrying amount (2) Reversal of impairment permitted (except goodwill) (3) Indefinite-life intangible assets: tested annually and whenever impairment indicators exist | (1) Two-step approach 1) Recovery test: Book value > Total future cash flows (undiscounted) 2) Impairment loss = Fair value – book value (2) Reversal of impairment not permitted (3) Impairment test only when indicators exist |
| 5. Useful Life, Residual Value, and Amortization Method | Reviewed annually (higher possibility of revision) | Changes allowed only in exceptional cases |
From the perspective of US GAAP’s rule-based philosophy, capitalizing development costs involves too much estimation and uncertainty.
So US GAAP generally takes the more conservative approach of expensing development costs immediately.
4. Cash and Cash Equivalents
| Cash | IFRS | US GAAP |
|---|---|---|
| Bank Overdrafts | Classified as cash and cash equivalents | Offset against cash only when held at the same bank If the balance is negative, classified as a current liability |
This difference also felt very practical.
The U.S. banking system is enormous and highly fragmented, so offsetting overdrafts across different banks would naturally become more difficult.
And yes… USCPA questions still love bank reconciliations involving checks sent by mail 😭
5. Financial Instruments
| Held-to-Maturity Securities | Available-for-Sale Securities | Trading Securities | |
|---|---|---|---|
| 1. Initial Measurement | Purchase price + directly attributable costs | Purchase price + directly attributable costs | Purchase price + directly attributable costs |
| 2. Classification | Current or non-current | Current or non-current | Current or non-current |
| 3. Subsequent Measurement | Amortized cost | Fair value | Fair value |
| 4. Unrealized Gain/Loss | N/A | Other comprehensive income (OCI) | Net income |
| 5. Income Statement Impact | Interest income, impairment loss | Interest income, impairment loss | Interest income, impairment loss |
| 6. Cash Flow Classification | Investing activities | Operating or investing activities | Investing activities |
Interestingly, US GAAP still uses the older classification system that many accountants may remember before IFRS 9:
- Held-to-Maturity
- Available-for-Sale
- Trading Securities
For accountants with longer practical experience, these concepts may actually feel more familiar than the current IFRS 9 framework.
6. Compound Financial Instruments
| Compound FI | IFRS | US GAAP |
|---|---|---|
| 1. Convertible Bonds | Separated into liability and equity components | Entirely recognized as a liability |
| 2. Bonds with Warrants | Separated into liability and equity components | Entirely recognized as a liability |
7. Statement of Cash Flows
| Cash flows | IFRS | US GAAP |
|---|---|---|
| 1. Interest Received | CFO or CFI (Operating or Investing Activities) | CFO (Operating Activities) |
| 2. Interest Paid | CFO or CFF (Operating or Financing Activities) | CFO (Operating Activities) |
| 3. Dividends Received | CFO or CFI (Operating or Investing Activities) | CFO (Operating Activities) |
| 4. Dividends Paid | CFO or CFF (Operating or Financing Activities) | CFF (Financing Activities) |
Interestingly, I never found a fully satisfying conceptual explanation for some of these cash flow classification differences 😂
If anyone has a particularly elegant interpretation, feel free to share it with me.
Overall, once you compare the two frameworks directly, the differences between IFRS and US GAAP are honestly smaller than many people initially expect.
And in my opinion, understanding financial accounting deeply is one of the most important foundations not only for FAR, but also for:
- AUD
- business ratios
- cash flow analysis
- and even audit procedures later on.
That’s exactly why I personally recommend starting the USCPA journey with FAR first.
I’ll return with USCPA 02 in the next post 🙂
Thanks for reading such a long article!
Global CPA 
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